VZCZCXRO9851
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0883 2130043
ZNR UUUUU ZZH
P 310043Z JUL 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8213
INFO RUEHHM/AMCONSUL HO CHI MINH 4970
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS HANOI 000883 
 
SENSITIVE 
SIPDIS 
 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
STATE FOR EEB/IFD 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ECPS ECON EAGR ETRD VM
SUBJECT:  IMF CONGRATULATES WHILE CAUTIONING THE GVN 
 
REF: A)  Hanoi 881 
 B)  Hanoi 846 
 
¶1.  (SBU) Summary:  The IMF Resident Representative in Hanoi 
believes the macroeconomic situation in Vietnam has stabilized in 
the short term, citing exchange rates and the stock market as 
reflective of increasing investor confidence.  He cautions, however, 
that a reduction in interest rates is premature and could undo the 
positive trends seen in the last month.  End summary. 
 
¶2.  (SBU) Ambassador and Econoff met with IMF Resident 
Representative Ben Bingham on July 28 to exchange views on the 
current macroeconomic situation in Vietnam.  Bingham believes that 
the situation has calmed and fears of an immediate balance of 
payment crisis have faded.  He pointed to the black market currency 
rate being close to the official SBV rate, the non-deliverable 
forwards markets calming and the stock market gaining as evidence 
that the system is beginning to stabilize. 
 
¶3.  (SBU) He sees these improvements as a result of an influx of 
positive economic news, including a narrowing trade deficit, 
decreasing inflation and slowing credit growth.  He attributes much 
of this success to the SBV for keeping dong liquidity very tight 
while pumping dollars into the market, but admits that "moral 
suasion" techniques have probably helped (sending inspection teams 
to the banks and gold shops, for example).  According to Bingham, 
chronic excess demand for dollars has eased from its peak three to 
four weeks ago.  He notes a "palpable sense of relief" in GVN 
officials. 
 
¶4.  (SBU) This sense of relief is somewhat worrying, he warns, 
because some GVN officials may already be considering an interest 
rate cut (Reftel A).  Bingham feels strongly that it is far too 
early to be considering such a move because inflation and inflation 
expectations are still not anchored.  He pointed to the currency and 
stock market fluctuations following the gas price hike (Reftel B) as 
examples of shaky investor sentiment.  Bingham feels the GVN should 
be wary of upcoming inflation numbers following the fuel price hike, 
as anything over 30 percent may cause domestic investors to panic. 
 
 
¶5.  (SBU) He feels things are getting better on the fiscal side, as 
well.  State-owned enterprises (SOEs) are "getting their horns 
trimmed" and cutting back on non-core projects.  (Note:  Local press 
reports indicate that both Vinashin and PetroVietnam have recently 
pulled out of major investment deals.)  Bingham would still like to 
see a revised budget, however, and he criticizes the Ministry of 
Finance for not communicating with the public.  He says that the 
PM's office could easily trim a large amount of investment spending, 
and that asking the provinces to bear most of the burden on this 
measure is "rather silly." 
 
¶6.  (SBU) Bingham cites the next two quarters as critical for 
getting data and expectations under control.  Only when the 
fundamentals are stable will depositors return to the banks and 
investors to the stock market.  He would also like to see the GVN 
using this time to look ahead and fix systemic problems so as to 
avoid similar occurrences in the future.  Specifically, he points to 
the GVN's exchange rate policy, equitisation process and State Bank 
structure as areas ripe for reform.  There could also be additional 
bad news forthcoming from the banking sector, where non-performing 
loans may jump and add to local doubts about the stability of the 
system. 
 
¶7.  (SBU) Comment:  Bingham's concerns about premature interest rate 
reductions are well founded.  Treasury DAS Dohner had similar 
concerns following his visit a few weeks ago (Reftel A).  The 
message that "interest rate reductions must wait until the 
fundamentals are solid" should be reinforced at all levels of the 
GVN.  Increasing liquidity at this critical juncture could reverse 
the early gains made by the GVN and result in long-lasting damage to 
investor sentiment both at home and abroad.  End comment. 
 
MICHALAK